How will you report the ppe in the consolidated balance sheet if some of the units use historical cost and some the market valuation?
If there is no historical cost data available, could you use the market value?
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As per IAS 8, accounting policies must be consistent within the Company. As the choice between the cost model and the revaluation model is an example of different accounting policies, you cannot apply both of them at the same time in the financial statements, the group must decide upon one of these policies and apply it consistently.
I am a bit surprised by the fact that there are units for which the COST is not available, usually it is market value that’s harder to determine.
However, if you really consider this is the case, you may want to apply the revaluation model – but, again, in this case it should be applied to all units, and there may be additional costs or other practical matters involved in determining market value for certain units.
If both of the options are impracticable, you should also look at the numbers and try to estimate what would be the impact if a single model were used throughout the group – would it be material to the users of the financial statements?
Hope this helps!
The other standard to liik at is IAS16. Under the standard, all assets within a class need to be valued in the same way.
At recognition, the valuation is cost, and subsequently the entity may revalue to ” a revalued amount”, but the entire class of assetr must be revalued at the same time.
If your issue is related to assets within a class, you will need to choose one method or the other. The standard does not allow mixed valuations.
Hope that this is of assistance.
Regarding revaluation of PPE IAS 16 states that:
“36 If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.
37 A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity’s operations. The following are examples of separate classes:
b. land and buildings;
f. motor vehicles;
g. furniture and fixtures; and
h. office equipment. ”
If in the Consolidated financial statement one class of asset is carried at revalued amount and other on cost basis, it is allowed under IAS 16 as per the paras quoted above. However, if there are some items in the class of assets at revalued amount and some at cost than this treatment is not allowed under IAS 16. Revaluation should be carried out on entire class of assets.
You can use the market value of assets, if the historical cost is not available. However, the same principal applies that what ever policy is used it should be used for the entire class of assets.
I hope this answers your query.
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thank you very much for all your responses. it helped a lot in clarifying important points.
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